Glossary
AI Finance Glossary
Plain-English definitions of AI, accounting, and SaaS-finance terms.
Categories
A
Actuarial Analysis
Statistical and mathematical analysis of financial risks using probability and data to price insurance and manage reserves.
Alpha
Excess return of an investment relative to a benchmark index after adjusting for risk.
Arbitrage
Simultaneous purchase and sale of equivalent assets to profit from price discrepancies across markets.
Asset Allocation
The strategic distribution of investments across asset classes — stocks, bonds, real estate, and cash — to balance risk and return based on goals and time horizon.
B
C
Capital Asset Pricing Model
Model describing relationship between systematic risk and expected return for assets in equilibrium.
Comparable Company Analysis
Valuing a company using trading multiples from publicly listed peer companies.
Compound Interest
Interest calculated on both the initial principal and previously accumulated interest, enabling exponential growth of savings and investments over time.
Credit Default Swap
Financial derivative transferring credit risk of a reference entity from protection buyer to protection seller.
D
Discounted Cash Flow
A valuation method that estimates the present value of a company or investment by discounting projected future cash flows at an appropriate rate.
Dividend Reinvestment
The automatic use of dividend payments to purchase additional shares of the same investment, compounding returns through increased ownership.
Dollar-Cost Averaging
An investment strategy of investing a fixed dollar amount at regular intervals regardless of price, reducing the impact of market volatility over time.
E
ETF
An Exchange-Traded Fund — a basket of securities that trades on a stock exchange like an individual stock, combining diversification with intraday liquidity.
Earnings Per Share
Net income attributable to common shareholders divided by weighted average shares outstanding.
Efficient Frontier
Set of optimal portfolios offering highest expected return for each level of portfolio risk.
Emergency Fund
A dedicated savings reserve covering 3–6 months of living expenses to protect against unexpected financial disruptions.
Estate Planning
The process of arranging for the management and distribution of assets during life and after death, minimizing taxes and ensuring wishes are carried out.
F
Fiduciary Duty
Legal obligation to act in another party's best interest, arising in relationships of trust and confidence.
Financial Modeling
Building quantitative representations of a company's finances to support decision-making and valuation.
I
L
M
Merger Model
Financial model assessing the accretion or dilution to acquirer EPS resulting from an acquisition.
Modern Portfolio Theory
Framework for constructing investment portfolios to maximize return for a given level of risk.
Monte Carlo Simulation
Computational technique using random sampling to model probability distributions of financial outcomes.
N
P
Portfolio Rebalancing
The process of realigning a portfolio's asset allocation back to target weights by selling overweight assets and buying underweight assets.
Price-to-Book Ratio
Market capitalization divided by net book value, indicating how much investors pay per dollar of assets.
Price-to-Earnings Ratio
A valuation metric comparing a company's stock price to its earnings per share, indicating how much investors pay for each dollar of earnings.
Q
R
Return on Assets
A profitability ratio measuring how efficiently a company generates net income from its total assets.
Return on Equity
A profitability ratio measuring how much net income a company generates per dollar of shareholders' equity.
Return on Investment
A measure of the gain or loss generated on an investment relative to its cost, expressed as a percentage.
Roth IRA
An individual retirement account funded with after-tax dollars, offering tax-free growth and tax-free withdrawals in retirement.
S
Sensitivity Analysis
Testing how a financial model's outputs change when individual input assumptions are varied.
Sharpe Ratio
Risk-adjusted return metric measuring excess return earned per unit of total volatility.
Sortino Ratio
Risk-adjusted return metric using only downside deviation rather than total standard deviation.
T
Tax Loss Harvesting
An investment strategy of selling assets at a loss to offset capital gains or ordinary income, reducing current tax liability while maintaining portfolio exposure.
Traditional IRA
An individual retirement account funded with pre-tax or after-tax dollars, offering potential tax deductions now and tax-deferred growth until withdrawal.
V
W
Y
#
401(k) Matching
An employer contribution to employees' 401(k) retirement accounts, typically matching a percentage of employee contributions up to a salary limit.
529 Plan
A tax-advantaged education savings account allowing after-tax contributions to grow tax-free and be withdrawn tax-free for qualified education expenses.